HSBC stays in London – why does it matter?

February 1, 2016

As you may well be aware HSBC - Europe's biggest bank - has recently announced that it plans to keep its headquarters in London. Since April 2015, the bank had been considering relocating its headquarters to Hong Kong but has now decided unanimously against the move.

We thought it would be interesting to take a quick look at:

Why HSBC considered relocating;

Why it decided not to;

What is the significance of this for other London businesses.

Why HSBC considered relocating

The main concern voiced by HSBC about staying in London was stricter UK banking regulatory conditions and in particular higher taxes. Its concerns about higher taxes are predominantly related to the UK bank levy that was introduced in 2010 which is a tax based on the value of all of the debts in a UK-based bank.

According to HSBC, this levy cost $1.1 billion (£720 million) in 2014. It believes that the levy puts UK banks at a competitive disadvantage because their competitors based outside the UK do not pay this tax at all.

HSBC has reviewed the location of its global headquarters every three years for some time now but this time more than ever before serious consideration was given to moving elsewhere, with Hong Kong seen as the preferred viable alternative.

HSBC - which stand for Hong Kong, Shanghai Banking Corporation - was based in Hong Kong for more than 100 years until its move to the UK in 1992. The bank still makes the majority of its money overseas, with Asia accounting for much of its profit.

Why HSBC decided not to relocate

In the announcement about staying in London, HSBC said that its 19-strong board unanimously decided that London "offered the best outcome for our customers and shareholders".

Its decision to stay has been cited by a UK Treasury spokesman as a vote of confidence in the government’s economic plan. “They’ve looked carefully and dispassionately at the facts and confirmed that the UK is the best place to base a global business. It’s a vote of confidence in the government’s economic plan, and a boost to our goal of making the UK a great place to do more business with China and the rest of Asia.”

Douglas Flint, the chairman of HSBC, told the BBC Today programme: "London is one of the world’s leading international financial centres and home to a large pool of highly skilled, international talent. It remains therefore ideally positioned to be the home base for a global financial institution such as HSBC.”

He also praised London’s benefits as “one of the most globally connected economies in the world with a fantastic regulatory system and legal system and immense experience in dealing with international affairs"

However, there is something of the carrot and stick phenomenon in the decision. As well as the cited benefits of staying in London, concern has also been expressed about the stability of the Chinese market.

There have been recent dramatic declines in China’s stock market, which is a relatively immature market attracting speculative and potentially volatile short-term private investments rather than longer term more secure investment. As one investor put it “There is no board that will allow a big bank to become Chinese and that is what a move would have meant for HSBC”.

According to HSBC, further reviews about the location will only take place if there was "a material change in circumstances", instead of every three years as at present. All well and good - but what about the original concerns that were to be addressed in this latest review?

The UK regulatory system itself was included in the praise for London from George Flint, who said London has an "internationally respected regulatory framework and legal system". Regarding the specific taxation issue, in George Osborne’s budget last July, he committed to gradually reducing the bank levy over the coming years.

So there is some incentive in those quarters, prompting Flint to say that “it was important that there was a change in the scope of the levy ….. the government has made very clear its commitment to ensuring that that UK remains a leading international financial centre ... We've ended up with the best of both worlds - a pivot to Asia led from London."

What is the significance of the HSBC decision for other London businesses?

According to George Flint, the decision to stay was based on a generational view and not on short-term dynamics: “It was based on a very thoughtful perspective on how economics will play out over the next 20 -25 years." Of particular interest to other businesses is that any fears that HSBC may have about Britain potentially leaving the European Union are less significant than their conviction that London is a leading financial capital.

These decision-making factors from HSBC should be an encouragement for all small business owners in the UK, particularly in London. The three key messages for us from HSBC seem to be that:

It is still possible for businesses to succeed even if Britain were to leave the UK;

Business taxation issues are being addressed and things should become easier in this respect for businesses;

Whatever frustrations exist about regulatory issues, HSBC have given a vote of confidence that the UK has an internationally respected regulatory framework and legal system.

All this may seem very far removed from you and your small business but we have put together 10 top tips related to the HSBC decision that you can apply to your business - whatever its size and stage of maturity - to help you move forward:

Regularly review your business plan to see what is best for your business today.

Take into account not just what your business is doing but what is happening in the economy around you.

Voice any legitimate concerns that you have as a small business owner - you really can help to change things for the better!

Sometimes moving forward can feel like going back, but as long as you are in the right place at the right time it will work for you.

Remember that in these days of the Internet your business has the potential to be a global organisation even if it isn’t already.

Don’t be afraid to stand out from the crowd in any decision you make for your business.

Feel free to share major decision-making processes with others who may be able to advise you.

Be brave! Change can seem daunting but you can take things step by step and gradually achieve your aim ...
… BUT always weigh up risks as well as rewards in any business decision. Whilst things are never clear cut and there will always be pros and cons, there is still a lot of truth in the old adage “if it seems to good to be true it probably is”.

Above all don’t be afraid to seek finance such as small business loans to fund business growth. As we’ve seen from HSBC’s decision-making process, banks are only businesses too and there should be no reason to fear or avoid them. If you don’t like the way you are treated or the decision that is made then you have ample opportunities to approach other organisations - such as Fair Business Loans - to obtain the funding you need to move your business forward!

We hope that this article has given you a bit of insight into how large corporations go about their decision-making, and that reflecting on the HSBC decision to stay in the UK has helped you to appreciate what a good place it is for your business too!

Now why not take on board some of the above ten tips to see how you can move your business forward in 2016. You may not have to decide between London and Hong Kong, but face your own decisions with confidence and put your best foot forward in whatever direction you decide to take!